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The brilliance of Apple Pay is that it will be so simple for the
user, yet the end-to-end system that makes it possible is
incredibly complex. Apple’s great strength is connecting the dots
between several different domains of expertise and then making
its technology either beautiful or invisible.

Apple already has the strong backing of the credit-card industry.
Credit-card firms want to convert the United States to using
chip-on-card readers. So the development of
Apple's mobile-payment system may serve as the impetus to
help scale the growth of near-field communication
(NFC) readers at the same time.

CEO Tim Cook did a great job, showing how easy it is to use Apple
Pay as he demonstrated the payment system, saying, “That’s it.” Apple Pay looks really
well designed and the partners Apple has put together are
really impressive.

Don’t confuse vision and aspiration with near-term reality. It's
going to take time to fully deploy Apple Pay on a large
scale. Apple Pay is a play for the long game and lots
of infrastructure must be created before it becomes the game
changer that the iPhone became.

Apple Pay requires an iPhone 6 with built-in NFC capability. For
Apple Pay to work, Apple needs retailers to buy NFC
readers. And it will be a while for the iPhone 6's installed
customer base to grow large. Apple’s worldwide iPhone market
share is about 12 percent so how will mobile
payments be made by smartphone users without an iPhone 6?

So great job, Apple, but Samsung and others still have some time
to come up with an alternative. Right now there are more Android
users (including those relying on Samsung phones) than
iPhone users.

What can Samsung, or for that matter any other player not in the
Apple mobile-payment ecosystem, like PayPal or Google do?

Samsung needs to do something because mobile payments and
mobile-oyalty programs offer a huge opportunity.

For years Samsung expanded its worldwide market share at Apple’s
expense. Now Apple is changing the ground rules of competition:
Apple found a chink in Samsung’s armor and is exploiting
it.

So the question now is, Has the Samsung giant become a
victim of its own success? Apple didn’t blink as Samsung
swept up market share. Instead, Apple doubled down on developing
its core competence, which lies in shaping new industries by
designing beautifully integrated end-to-end systems that rely
on a combination of software and hardware trade-offs.

Apple is upping its game in a way that may be hard for Samsung to
follow. Apple is using the expertise that it’s well-known
for (in horizontal platforms) to build vertical market platforms
that can offer features such as NFC payments, iBeacon
customer-loyalty programs, fitness services, streaming music and
smart-home technology. (Android and iOS 8 are general
purpose horizontal platforms. A vertical platform sits on
top of the horizontal platform and has additional special-purpose
capabilities specific to a domain like mobile
payments.) Horizontal platforms may yet become a commodity
technology.

But it's still the early days of manufacturers' trying to
realize big-data vertical platforms on mobile devices.

In February when Samsung launched its mobile digital watch called
Gear 2, many concluded that this admired company may be an
emperor with no clothes. Then Samsung made big news while setting
high expectations in announcing its Silicon Valley R&D
campus. Innovative Silicon Valley firms brag about their
technology and services but Samsung chose to boast about its new
campus. Hmmm?

Has Samsung been outmaneuvered without a path forward in mobile
payments and mobile customer-loyalty services?

Not if Samsung decides to change the rules of competition
and take advantage of the millions of retailers still using
bar-code and magnetic-striped credit-card readers.

When I was Pepsi-Cola's CEO (before serving as Apple's
chief), I learned in my “cola war” days that the # 2 brand should
not compete against the # 1 brand using its rules of the
game. That’s why in the 1970s Pepsi's managers and
I created the Pepsi Challenge, a blind taste test,
which helped Pepsi outmaneuver Coca-Cola Co. Then a
distant second-tier brand, Pepsi's brand was able to pass Coke 's to become the
largest-selling consumer-packaged goods brand in the States.

Mobeam is a Silicon Valley company that has commercialized a
really simple customer experience that is shaking up the mobile
electronic-coupon world. (Full disclosure: I’m a Mobeam
investor.) Mobeam technology converts bar-code data into the red
pulsing LED light found at the front of most Samsung Galaxy
smartphones.

This simple idea has enabled major consumer-product firms to
instantly electronically offer special discounts and coupons to
their most loyal customers. All these consumers need to do is aim
their smartphone at the checkout scanner.

Note that Mobeam technology does not yet have mobile payment
capability but it could be adapted. Retailers already have
optical scanners that can read bar codes. Mobeam technology can
work with the existing installed base of one-dimensional optical
scanners.

As marketers know, the most important goal is keeping customers
in an ecosystem and make them very, very happy.